Entering New Markets in the Presence of Competition: Price Discrimination versus Cannibalization

Ralph Siebert

Journal of Economics & Management Strategy, 2015, vol. 24, issue 2, 369-389

Abstract: This study focuses on firms' optimal entry strategies in new markets when products are differentiated in quality. We are interested in investigating how many products of different qualities firms should introduce into an empty market. One profitable strategy is that firms introduce multiple products to proliferate the product space such that entry by competitors is deterred. Our results show that firms' optimal strategy to enter new markets is described by introducing a single product only. Firms differentiate their products not only toward their rivals' products to soften price competition, but also toward their own goods in order to avoid cannibalizing their own (high quality) product demand.

Date: 2015
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